China and The Global Depression
March 7th, 2009China grows and everyone acts as if it is a surprise. We have followed China for many years, and have been calling for strong Chinese growth in 2009. This is not due to our personal wisdom, this is due to the work of our 3 favorite economists. These economists are based in China and have been remarkably accurate in the past. We also have seen the work of 12 or more China based economists who have not been accurate in the past. Our bullish outlook for China has been based upon the economic outlook of the accurate economic forecasters. Now we get corroborations from the numbers and from the statements of government officials.
China will grow in 2009 much more than any other country of any size.
However let us be realistic, China’s growth alone or when combined with slower growth from India will not be enough to create any semblance of growth in Europe and North America.
The global depression in Europe and the US will continue and accelerate in coming months.
THE US DOLLAR AND THE REPATRIATION OF US ASSETS TO THE US….. THE CURRENT VIEW VERSUS THE RATIONAL INVESTOR
According to several currency strategists, the US dollar will continue to rally for months or even a year. They say that global fear and panic in the investment and banking environment are causing the repatriation of massive amounts of US dollar assets held overseas to be repatriated into the US and placed back into dollars. They argue that as US holders of foreign stocks, bonds and direct investments made by US companies and individuals for the last 20 years are being repatriated. It is argued that the massive amount of foreign investment by US organizations dwarfs the amount of currency held by central banks, and willy-nilly repatriation based upon fear will cause the US dollar to continue to rise.
This is clearly the current psychology and the reason that so many speculators are buying dollars and selling other currencies… but we doubt the staying power of this thesis.
WHY WE DISPUTE THIS THESIS
We are asking the question “Why would those who want their assets to grow, repatriate them to the US? Why would they not move them from Europe, or other parts of the world where they are not providing good returns to China and India where the economic growth rate is positive, and the opportunities for profit are good?”
The answer is that fear and not rationality is dominating the investment process currently. So some investors are indeed repatriating assets to the US willy-nilly. However, we doubt that most investors are so short term oriented or so panicky. If investors were acting in a rational manner they would seek positive returns in China, India or some other country with good growth prospects, not minute returns in US Treasury Bills.
Further under new US tax proposals, profits will be taxed at higher rates in the US [should profits develop], and there is no doubt that the environment has become decisively less pro business in the past 2 months..
As time passes and rationality returns to the investment process, global investors will for many reasons, send money to those parts of the world where growth continues to be strong. At that point in time, the dollar will once again begin to decline.
Some say it will take a long time for people to become rational and that they will remain panicky for quite a while. I dispute that argument. Those who panic easily never make money in the first place, those who have made money and thus hold it abroad, are not the panicky types and thus we see the dollar rally lasting for a much shorter time than some other observers.
Respectfully yours,
Monty Guild
www.GuildInvestment.com











